Dollar Tree Shares Downgraded At MKM Following 'Tough' Q2

Dollar Tree, Inc. DLTR reported disappointing Q2 results, with the weakest SSS since 4Q13. MKM Partners’ Patrick McKeever downgraded the rating on the company from Buy to Neutral, while reducing the price target from $104 to $80.

Dollar Tree’s constant-currency comps rose 1.2 percent, versus the MKM estimate of 2.0 percent and the Street's expectation of 2.4 percent. This represented a m/m slowdown, amid a challenging consumer environment. Dollar Tree exhibited “less resiliency” than it had done in the past, analyst McKeever commented.
Despite the top-line miss, EPS came in at $0.72, with consolidated gross margin of 30.3 percent, the analyst pointed out.

Weak Performance By Family Dollar

Comps at Family Dollar Stores, Inc. FDO turned negative after three positive quarters, with an estimated decline of 1 percent, “even as FDO cycled what we believe was a very easy comparison as the company grappled with management and employee turnover in the weeks prior to the acquisition (closed on 7/6/15, two months into fiscal 2Q15),” McKeever noted.

Estimates Tweaked

The Q3 comp estimate for Dollar Tree has been reduced from an increase of 2.5 percent to 1.5 percent. Family Dollar is expected to be flat, versus the prior estimate of a 2.0 percent increase.

The EPS estimate for Q3 has been raised from $0.77 to $0.79 to reflect “an anticipated $0.09 lift from a one-time tax benefit,” McKeever mentioned. The EPS estimate for FY16 has been raised from $3.72 to $3.74.

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